Spring Statement: A cautiously optimistic outlook

Rachel Reeves delivered the latest Spring Statement with a more positive spin compared to the doom-and-gloom messaging of the Autumn Budget.

While growth remains a significant challenge, the overall tone suggested a cautious optimism, even as uncertainty looms over the potential impact of global events, such as the ongoing ‘Tariff War’ spurred by the Trump administration.

Key takeaways from the Spring Statement

No changes to taxation
Despite speculation, there were no immediate changes to taxation in this statement. However, the government remains committed to balancing the books through a combination of spending cuts and economic adjustments.

Economic forecast
The Office for Budget Responsibility (OBR) downgraded the UK’s growth forecast for 2025 from 2% to 1%. However, there is an expectation of steady improvement over the next four years:

• 2026: 1.9%
• 2027: 1.8%
• 2028: 1.7%
• 2029: 1.8%

Inflation is expected to average 3.2% in 2025, up from the previously forecast 2.6%, before falling to 2.1% in 2026.

Spending cuts and policy adjustments
To maintain fiscal responsibility, the government is introducing several spending cuts and policy changes:

• Welfare reforms: Stricter criteria for Personal Independence Payment (PIP) and changes to incapacity benefits.
• Defence investment: A £2.2 billion increase in defence spending, funded by reductions in overseas aid.
• Public sector efficiencies: Measures aimed at increasing efficiency in public services, alongside an HMRC crackdown on tax fraud.

Challenges facing the UK economy
The UK economy continues to grapple with a series of tax-related challenges introduced in the Autumn 2024 budget, including:

• Employer’s National Insurance Contributions (NICs) at 15%, with a reduced £5,000 threshold.
• Capital Gains Tax (CGT) increases:
  • Basic rate: Up from 10% to 18%
  • Higher rate: Up from 20% to 24%
• Frozen personal tax allowances until 2028.
• Inheritance Tax (IHT) thresholds frozen until 2030.
• Corporation tax remaining at 25% into 2026.
• Business Property Relief (BPR) and Agricultural Property Relief (APR) now capped at £1 million.
• VAT on private schools to remain in place.
• Pension pots to be subject to IHT, adding further tax burdens on retirement savings.

Rachel Reeves’ closing remarks
Shadow Chancellor Rachel Reeves closed with a pragmatic outlook, acknowledging that:

• There are no quick fixes to the UK’s economic challenges.
• The world is changing, requiring a more dynamic approach to fiscal and economic policies.
• The British public is impatient for change, signalling a strong demand for economic reforms and policy improvements.

Final thoughts

While the Spring Statement provided some reassurance, significant economic hurdles remain. The government’s approach to spending cuts, taxation, and economic growth will be under intense scrutiny in the coming months. The UK’s economic future hinges on how well these policies are executed and whether they can deliver sustainable growth without exacerbating financial strain on households and businesses.

If you have any questions, or need to discuss elements of the above, please reach out to our team.